Evaluating the macroeconomic effects of a temporary investment tax credit
As part of a fiscal stimulus package, some members of Congress have recently proposed a temporary investment subsidy. This paper uses the neoclassical growth model to evaluate the likely macroeconomic effects of such a subsidy. The model predicts a 0.8 percentage point increase in output growth for the quarter in which the policy is implemented. In subsequent quarters, the output growth effects are negligible. As the subsidy ends, output growth falls by 1 percentage point before returning to its trend growth rate. While a permanent subsidy will lead to more capital deepening in the long ...
An incentive-compatible suggestion for seigniorage sharing with dollarizing countries
Sixteen countries now treat the U.S. dollar as legal tender. Although dollarizing can help emerging-market countries gain monetary credibility and avoid currency crises, many do not want to give up the seigniorage revenues associated with issuing their own fiat currency. This article offers a proposal for seigniorage sharing.
Fiscal and generational imbalances: new budget measures for new budget priorities
This paper describes the deficiencies of the measures used to calculate the federal budget, make revenue and spending projections, and assess the sustainability of current fiscal policies. The nature of the deficiencies hides the tremendous impact that Social Security and Medicare commitments will have on the budget in the future, given the way the programs are structured currently and the momentous demographic shift underway as the baby boom generation approaches retirement age. This paper proposes two new simple measures that will enable government officials and the public to calculate more ...
International financial flows and the current business expansion
Since 1992, the United States has enjoyed sustained, rapid economic expansion characterized by rising labor force participation, booming net investment spending for information equipment and computer software, and strong productivity growth. Substantial foreign capital inflows have helped to finance the investment boom as well as a rise in private domestic consumption spending. This paper illustrates how capital inflows can be both a bane and a boon to economic growth.
Does wage inflation cause price inflation?
Is there any evidence to support the assumption that increased wages cause inflation? This study updates and expands earlier research into this question and finds little support for the view that higher wages cause higher prices. On the contrary, more evidence is found for higher prices leading to wage growth.
A conference on consumer protection in financial product markets
A conference organized by the Federal Reserve Bank of Cleveland engendered an informative discussion of consumer protection in financial products markets. Anticipating significant changes in financial regulation, the conference asked the question, "How could regulators successfully protect consumers?" It intentionally looked beyond the existing institutions. The first of three panels discussed how consumers gather information and process it to make purchase decisions. Lessons learned from research on food labeling and shopping were discussed. Another panel examined the roles of ...
Walking on a fence: Brazils public-sector debt
Brazil is walking on a fence between sustainable and unsustainable public-debt dynamics. How it treads could affect not only its own economic prosperity but that of its neighbors, emerging markets in general, and U.S. financial institutions in particular. Relatively small improvements in Brazilian economic conditions and a continuation of that countrys recent fiscal improvements could push Brazil in the right direction, particularly if the dollar continues to depreciate.
Measuring labors share of income
Recent Bureau of Labor Statistics (BLS) data show labors share of income at a historic low. This Policy Discussion Paper explores the BLS calculations with an eye to understanding the factors leading to the recent fall in labors share. While data limitations prohibit replication of the BLS series, alternative measures of labors share of income, based on either the nonfinancial corporate business sector or the macroeconomy more generally, are near their historic averages, quite unlike the BLS series.
Recent developments in monetary economics: a summary of the 2004 Workshop on Money, Banking, and Payments
We provide a summary and an overview of the papers presented at the Federal Reserve Bank of Clevelands 2004 Workshop on Money, Banking, and Payments, held during the weeks of August 3-7 and August 23-27, 2004.
Systemic banking crises
Systemic banking crises can have devastating effects on the economies of developing or industrialized countries. This Policy Discussion Paper reviews the factors that weaken banking systems and make them more susceptible to crises.